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Monday, October 11, 2010

Truth About Bush Tax Cuts: They Don't Work

It appears that with midterm elections quickly approaching in November, all any Washington, D.C., politician can talk about is tax cuts. Not just any tax cuts but the Bush tax cuts, which largely benefited the rich. Republicans believe that we should keep them in place — at least for another two years and Democrats say they should only be kept in place for the middle class. What is not talked about is whether the tax cuts have had any impact on the average American.

The two major tax-cutting bills from the Bush era were the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) of 2001, and the Jobs and Growth Tax Relief Reconciliation Act of 2003. These bills lowered tax rates across the board on income, dividends and capital gains; eventually eliminated the estate tax; further lowered burdens on married couples, parents and the working poor; and increased tax credits for education and retirement savings. The Obama Administration’s proposal would extend most of these reductions, allowing only those for individuals earning more than $200,000 and families earning more than $250,000 per year to expire.

Bush tax cut dollars benefit higher-income households, the group of people who save more and spend less than lower income earners. If this is how jobs are created then there should be some visible growth, given that they are still in place until December 31, 2010. Also, it is inaccurate to say that if removed they will hurt small businesses. Less than 2 percent of tax returns reporting small-business income are filed by taxpayers in the top two income brackets.

The fact is that extending the tax cuts adds to the deficit by creating an even larger deficit. In fact, even if everyone in America was employed, continuing the Bush tax cuts would lead to a national debt, meaning the yearly deficit would rise from 6 to 7 percent of GDP by 2020. The Bush tax cuts reduced revenue and by some estimates, account for 25 percent of our current deficit. As for creating jobs, there is no evidence of that for if they did, we would have more jobs being created now with the tax cuts still in place